Morgan Stanley has two big hopes from Budget 2012. Will they be fulfilled?

Economists, analysts, businessmen, salaried workers: every one is looking for  some positive measures from the Union Budget 2012

Morgan Stanley is the latest to come out with its expectations from the Budget that will be presented on 16 March.

The brokerage predicts the budget will focus on two issues: cut government expenditure and boost private investment.

It notes that in the past, stock markets have been flat is the month preceding the Budget; in two out of three years,  the markets have fallen after the Budget. However, there is no observed correlation between the market’s performance and a market-friendly budget.

Budget to be a positive for infra and utlities

In terms of sectors, Morgan Stanley expects the Budget to be positive for infrastructure and utilities as the government attempts to push private investment. In a bid to bring down expenditure, the government should also refrain from any policies that boost further consumption, it notes. That could, however, be negative for consumer goods sector, which could be further hit if the government decides to take a firm stand on slashing oil subsidies.

To revive capital expenditure, the government might attempt to revive pending reforms like foreign direct investment in multi-brand retail and reduction in fuel subsidies; these could be announced either along with the Budget proposals or around that time.

Morgan Stanley identifies five key policy actions that require immediate action:

The implementation of the Goods and Services Act,  hastening the process of awarding infrastructure projects through public-private partnerships, energy pricing reforms, acceleration in infrastructure spending with a special focus on the power sector and a road map for the systematic divestment of government stakes.

The brokerage predicts the government will target a fiscal deficit of 4.9 percent for the next year starting 1 April. Along with trying to increase revenues by increasing the service tax net and excise duty rates, there might also be a lower expenditure guidance.

Implementation, however, will be key. The report reminds us that in the past eight years of UPA rule, the government has adhered to its expenditure guidance only once — in 2008.

So many hopes from so many corners of the economy. Come 16 March and we’ll find out if the Finance Minister actually delivers.